Viability loophole hits affordable housing

The government has announced measures to tackle Britain’s housing crisis, including ending the abuse of viability assessments by developers to dodge their obligations to build affordable housing. In the first of two articles Nick Terdre looks at how viability assessments have become so problematic, the council’s response and how the town’s supply of affordable housing has suffered.

It was prime minister Theresa May herself who put the blame for the shortage of affordable housing squarely on the shoulders of developers, when she said in early March: “…by ending abuse of the ‘viability assessment’ process, we’re going to make it much harder for unscrupulous developers to dodge their obligation to build homes local people can afford.”

‘Abuse’ and ‘unscrupulous’ are strong words for a Tory politician to apply to her natural allies, but not out of place, given the damage caused to the supply of affordable housing as developers have wielded the weapon of confidential viability assessments – kept secret from both elected representatives and the public – to claim that their schemes are only viable if their obligation to build less profitable affordable housing is dropped.

If the changes proposed by the government are firmed up in the coming revisions to the National Planning Policy Framework (NPPF), viability assessments will no longer be kept under wraps – instead, except under very limited circumstances, they will be open to public scrutiny, as will the reports of the District Valuer Services (DVS) which provides an independent appraisal of the assessments.

‘Bad taste in the mouth’

Labour councillors in Hastings have long complained about the iniquities of the confidential viability assessments. In 2016, when the planning committee passed Laing’s application to drop its 30% affordable housing quota for the Station Plaza housing scheme , committee member Cllr Phil Scott told HOT: “I’m afraid the truth is that the ‘viability’ factor came into play here. Developers did indeed play the ‘viability’ card and the District Valuer I’m afraid agreed with their case.

“For sure it does leave a bad taste in the mouth of members as our hands are very much tied, as much as we may protest.”

However, in the last couple of years, as the numbers of affordable homes lost to viability assessments have mounted, councillors elsewhere have increasingly rejected the notion that their hands are tied and instead have started taking action to force developers to open up their viability assessments to public scrutiny.

Often they have adopted what is called a supplementary planning document (SPD), which lays out in unambiguous language the requirements to be fulfilled by developers when preparing a planning application, including the need to comply with council policy on affordable housing and, in the event they wish to deviate from this policy, the need to provide an open-book viability assessment – one which will be made public.

HBC, meanwhile, has prevaricated on this issue – several times it has committed to introducing an SPD, only to fail to do so. An April 2016 document entitled Hastings Local Plan – Local Development Scheme stated that an SPD would be produced on affordable housing. It has not happened.

Instead, since it became clear that the government was looking to revise planning guidelines, the council has adopted a wait-and-see attitude. As council leader Peter Chowney told HOT in January, “We did say last year that we’d look at a Special Planning Document that would require viability assessments to be published, but I’m not sure that helps all that much, and the government is now proposing to make that a legal requirement anyway, so we haven’t taken that any further.”

Community Infrastructure Levy

HBC has also declined to make use of another tool, the Community Infrastructure Levy (Cil), introduced by the government in 2010 to allow planning authorities to raise funds from developers for infrastructure development – the roads, schools, GP surgeries, parks, playgrounds and other facilities needed in every neighbourhood. It is the only council in East Sussex not to have introduced Cil or set the wheels in motion to do so.

Affordable houses are exempt from Cil, which provides an incentive for developers who include some in their housing schemes.

In 2013 HBC accepted a consultant’s assessment that the levy would pose too great a burden on developers given the then state of local house prices, but that the situation would change if local house prices rose by 10%.

In April 2016 house prices as assessed by the Land Registry UK House Price Index had risen by 36%, but the same Local Development Scheme document stated that “…it had been determined that a Community Infrastructure Levy…charging schedule would currently be unviable due to current market conditions”.

By the middle of last year, the Land Registry UK HPI showed that prices in Hastings had risen by around 50% since 2013. However, that has still not prompted the council to introduce Cil – instead Cllr Chowney has told HOT that they will wait to see the outcome of a public consultation by the House of Commons Communities and Local Government Committee. Submissions closed in early March.

The subject of the consultation is “the effectiveness of current land value capture methods” such as Cil and Section 106, the Town and Country Planning Act provision which empowers local planning authorities to require affordable housing as part of housing schemes. The consultation is a recognition that the mighty uplift given to the value of a plot of land when it acquires planning permission is being pocketed by developers and landowners, while councils are being left short of affordable housing and the funds for infrastructure improvements.

Greens and LibDems critical

Other political parties are critical of the Labour council’s lack of action. Julia Hilton, a Green Party candidate in the forthcoming local elections, told HOT: “Given the desperate need of local people for affordable housing, HBC should have been a leader in demanding transparency in housing developer’s viability assessments. Instead it has resisted all attempts to make these figures public, even when Freedom of Information requests have been made.

“Similarly it has dragged its feet on implementing a Community Infrastructure Levy on developers and therefore missed out on millions of pounds that could have been spent on local infrastructure.

“Now the recent consultation on the National Planning Policy Framework recommends transparency in all developer calculations, perhaps the council will show leadership by implementing this recommendation as soon as possible.”

The Liberal Democrats are similarly displeased with the council’s handling of the matter.“As you might expect we are very unhappy about the use of these assessments by developers to excuse themselves from the provision of much-needed social and affordable housing. And we have been critical of the Labour Council for not enforcing its own policy,” local election candidate Nick Perry told HOT.

“We predicted, at the time, that Station Plaza was a gateway decision, and sadly that appears to have come to pass. Viability assessment information should be available to the Planning Committee and the public alike. Transparency is at a very low ebb, and that must change.”

Viability assessments take their toll

Laing’s Station Plaza scheme mentioned by Mr Perry is one case in which the developer of a scheme with planning permission subsequently had its affordable housing obligation cancelled on the basis of a confidential viability assessment, leading to the loss of 31 affordable homes.

In three other cases, Park Lane Homes submitted viability assessments during negotiations with the planning department on the terms of its applications, with the result that the 20 affordable homes required by council policy on its High Breezes scheme were replaced by a financial contribution of £50,000, the eight-home obligation on the Little Acre Farm development by a £95,000 financial contribution and 14 homes on the Mayfield Lane project by a financial contribution of £168,330.

S106 financial contributions in lieu of homes are supposed to be equivalent to the value of the homes lost, but here again the developer used the viability assessments to argue down the amount it should pay.

A viability assessment submitted by Flint Group led to the cancellation of 13 affordable homes from its Observer Building redevelopment without any financial contribution being required. This scheme differs from the others in that, as it involves a heritage asset, it was classified as an enabling development.

Altogether 86 affordable homes which the town should have acquired through the council’s H3 affordable housing policy were lost from these five schemes, either through the use of a viability assessment or through the simple agreement of the planning department.

The planning department justifies giving in to developers on the grounds that “Government Guidance is such that building new homes is paramount and local authorities should not be seen to stall house building due to non viability and affordable housing contributions.”

However, all the schemes on which the affordable housing obligation was cancelled were tested and deemed viable when the Local Plan was prepared, so clearly one or other of these viability exercises does not reflect reality.

The net situation would have been even worse but for Gemselect, which applied – also with the backing of a viability assessment – to have the affordable housing quota for the Archery Ground scheme raised from the 21.5% agreed by the original developer, Laing, to 56%, equivalent to 68 units out of a total 121. Gemselect is partnered in this scheme by Orbit Homes, a housing association.

Devastating effect

The arrival of the viability loophole has had a devastating effect on the supply of affordable housing. Prior to 2012 the situation was reasonably good: according to the council’s Local Plan Monitoring Report for 2015/16, in the six years to 2011/12, 346 affordable dwellings were completed, equivalent to 95% of the target of 364 (and other statistics show that deliveries exceeded target in this period). But in the four following years to 2015/16, completions totalled 227, equivalent to only 78% of the target of 291.

And in 2016/17, as reported to the Oversight and Scrutiny Committee, no affordable homes were built, against a target of 75. Adding these figures to those for the previous four years, 227 affordable homes were built between 2012/13 and 2016/17, equivalent to only 62% of the target of 366.

The situation in Hastings mirrors what has been happening in the country as a whole. Shelter calculates that nationally, in the three years after 2012, the number of affordable homes built under S106 agreements fell by almost 40%, to an average of 17,000 a year, compared to the four years prior to 2012.

Mrs May and the housing secretary Sajid Javid rail against the ‘housing crisis’ and the ‘broken housing market,’ but conveniently forget that it was the coalition government led by David Cameron which opened the door to the abuse of viability assessments and undermined the supply of affordable housing.

The next article will look at the government’s proposed changes, whether the council can make use of them to improve the supply of affordable housing in Hastings, and how councils elsewhere are already turning the tide.

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